Aug. 16 (Bloomberg) -- The pound rose to its strongest
level against the dollar in more than two weeks after U.K.
retail sales in July increased more than analysts forecast and
June data were revised upward.

Britain’s currency advanced against 13 of its 16 major
counterparts as research group Capital Economics Ltd. said the
data add to evidence that Britain’s economy may have shrunk less
in the second quarter than the 0.7 percent contraction
previously estimated by the Office for National Statistics.
Updated gross domestic product data is due to be released on
Aug. 24. Gilts were little changed after a sale of 1.5 billion
pounds ($2.4 billion) of 4.5 percent bonds maturing in September
2034.

“Sterling has gone up on the back of the huge surprise in
retail sales data,” said Gavin Friend, a markets strategist at
National Australia Bank in London. “This is good news, and
suggests the economy may not be as weak as we had thought.”

The pound gained 0.4 percent to $1.5743 at 4:16 p.m. London
time, after weakening as much as 0.3 percent. It jumped to as
high as $1.5744, the most since July 30. Against the euro,
sterling weakened 0.2 percent to 78.50 pence, after reaching
78.13 pence, the strongest level since July 31.

Sales including auto fuel gained 0.3 percent from June, the
Office for National Statistics said today in London. The median
forecast of 22 economists in a Bloomberg News survey was for a
0.1 percent decline. Sales in June were revised to a 0.8 percent
gain from a 0.1 percent increase.

Gilts Sale

Britain’s currency has advanced 0.8 percent in the past
week, according to Bloomberg Correlation-Weighted Indexes, which
track 10 developed-nation currencies. The dollar was little
changed and the euro climbed 0.5 percent.

The 10-year gilt yield was little changed at 1.69 percent.
The 2034 securities were sold at an average yield of 2.786
percent, the U.K. Debt Management Office said. Investors bid for
1.98 times the amount of securities allotted, it said. That
compared with a ratio of 2.06 times at a sale of 4.75 percent
debt due 2030 on July 3.

“Today’s U.K. gilt auction was well received,” Annalisa
Piazza, a fixed-income analyst at Newedge Group in London, wrote
in a note to clients.

Other reports have shown the U.K. slump may not be as deep
as forecast. Jobless-benefit claims unexpectedly fell in July,
data showed yesterday, while industrial output figures for June
released last week dropped less than estimated.

Momentum Struggle

“Second-quarter gross domestic product may have contracted
by about 0.4 percent, rather than the 0.7 percent initially
estimated,” because of the data, Vicky Redwood, a London-based
economist at Capital Economics, founded by former adviser to the
U.K. Treasury Roger Bootle, wrote in a note to clients. “A
sustained, strong pick-up in spending still looks unlikely,”
she wrote, because the economy is still in recession.

The pound will “struggle to gain momentum,” Friend said,
predicting it will fall to 81 pence per euro in the next few
months. Sterling will end the year about 0.8 percent weaker at
79 pence per euro, according to the median estimate of analyst
forecasts complied by Bloomberg.

The Bank of England, which left its bond-purchase, or
quantitative-easing, target at 375 billion pounds on Aug. 2,
last week said the outlook is “unusually uncertain.” It
predicted annual gross domestic product expansion of about 2
percent in two years, compared with a projection in May of 2.5
percent.

U.K. bonds have returned 2.7 percent this year, according
to indexes compiled by Bloomberg and the European Federation of
Financial Analysts Societies. They outperformed German bunds,
which earned 2.5 percent and U.S. Treasuries, which rose 1.3
percent, the indexes show.